CT2 P4 Ch 10

[tommo]

Hi there,

I was wondering why the trade payables are listed as a credit, and not as a debit. Conversely, why the trade receivables are listed as a debit and not a credit??

My understanding was that a trade receiveable was a debtor (I.e income outstanding) and vice versa for the payable?

 

[Oxymoron]

Hi there,

I was wondering why the trade payables are listed as a credit, and not as a debit. Conversely, why the trade receivables are listed as a debit and not a credit??

My understanding was that a trade receiveable was a debtor (I.e income outstanding) and vice versa for the payable?

If you purchase goods on credit, there are two accounts involved -> trade creditors and purchases. Trade creditors classify under personal account (as it represents a person, real or artificial).

Now going by the principles of accountancy, the rule for personal account is -
'Debit the receiver, credit the giver'. In this case, the goods have been given by 'trade creditors', so you credit them.

Similar work around for trade receivables...

 

[Simon James]

One way to think about it......

A trade payable is someone you owe money to (liability). Effectively someone else (a creditor) has give you money (or goods) that you are using in your business - so these have been credited to your business (a credit).

Similarly, trade receivables is money owed to you (an asset). Effectively you have lent money (or goods) to someone else (a debtor) temporarily and they have left your business (a debit)